Logistics Management Group News Editor Jeff Berman and Tom Madine, CEO of Worldwide Express, a Dallas-based privately held freight brokerage and authorized UPS reseller, spoke about various industry topics at the “Industry Keynote” at the SMC3 Connections ’22 conference in San Diego in late June. Their conversation follows below.
LM: How, and in what ways are you seeing the ongoing role of logistics technology as a way for providers to increase their value and service offerings to shippers and also as a “disruptor?”
Madine: Over the last few years, we have said that technology is our second-largest expense behind the commercial engine of our sales force. Technology enables our product, and when we think about the customer experience, it is also about giving our customers a digital grade consumer experience. Once a customer is on your platform and using your services, it is really about tying it all together. That is the way all of our businesses work. It could not work at scale without having it all work well. For WWE, we have carriers and UPS, thousands of employees, agents, and franchisees, and 100,000 customers all connected to the platform. All the investments we are making are around visibility, the ability to communicate, and ways we can take a lot of friction out of helping customers with things like having access to better information and having more rapid access to information…and making things more seamless for friction-free for our customers and carrier partners.
LM: In what ways does it help your shipper customers make better decisions?
Madine: We want to provide our customers with an incredibly seamless experience, akin to the old Nordstrom’s model and how it handled returns processes. Most of our customers are small businesses and don’t want to deal with headaches. So, anything we can do to help them take the friction out of an exchange, whether it is on a claim or a credit or an operational issue, that is where we are putting our energy. And technology enables us to do that a lot more effectively and more rapidly to spot trends and things like that. It really boils down to less the technology and more the culture of an organization, which are really important.
LM: M&A and private equity activity seem to show no signs of slowing down. That said, how do you view that as a growth strategy for providers?
Madine: We have had private equity ownership since 2007 and were one of the first non-asset-based companies to bring private equity money in. If you think about how we have grown as a company over the last 15 years, we have done well over 100 acquisitions for our franchises and agents. And we have done two really large transformation deals with Unishippers and GlobalTranz. All of that was fueled by having institutional capital. The access to capital and credit markets has been fantastic. There is a lot of money on the sidelines, and when you sign up for private equity, you are signing up for a strategy in which your business is going to grow organically and also through acquisition. I think, in my opinion, that all of the capital that is coming into transportation will continue.
LM: Labor issues remain front and center in all sectors. What are the biggest ways in which it is impacting logistics and what can be done to mitigate this situation until things improve?
Madine: I think that because we are non-asset-based we have a much easier problem to solve than carriers do. From a carriers’ perspective, navigating the last few years through the pandemic shutdowns, inflation, and labor costs rising has been more difficult. Compensation has definitely gone up as everything costs more. On our end, we are really pushing a customer experience to be similar to the employee experience. We are still working remote and rethinking what we use our offices for as more of collaboration spaces than work spaces, and we are trying to have a fairly flexible environment for our employees to work in. Our labor retention has actually gone up since the beginning of the pandemic [with more people working remotely], because we are being flexible. If we forced all of our employees back into the office, we would lose around 5% of them quickly. I think it has to do with flexibility, and we are putting a lot more emphasis on training and development. In a market where labor is at a premium, you need to up your game and make your company a place where people want to work.
LM: As a follow-up, more young people are entering the industry. What do you think about the evolution of logistics as a career path?
Madine: A disproportionate number of our employees are under the age of 30. We have had an influx of new talent, some of it right out of college. I think it is a great career path. I fell into logistics 25 years ago and just stuck with it. Back then, there were not these huge mega-corporations where youngsters could do to start a career. Now, there are companies like ours and a handful of others that have built out the scale and become great companies to work. Carriers are a fantastic career path, too. I think you will see more and more young people coming into the industry, but the key is companies providing a workplace for them that they want to be a part of. That is the real key for young people that want to grow in logistics.
LM: How are you viewing the 2022 Peak Season, given how Shanghai was largely shut down for months and also the ongoing PMA-ILWU negotiations?
Madine: Seemingly, there has not been a normal Peak Season in the last four years or so. People are getting out and shopping more now than they did, and e-commerce is just continuing to grow. I think we will see more people shop earlier as opposed to when things get jammed up in December. That said, I think you will see a longer Peak Season across most modes. It is hard to say what will happen with the excess [retailer] inventory and liquidation but, to the extent of having a normalized Peak Season, I think it will be more normal this year compared to the past few years.
LM: Can you please describe the impact of 40-year highs for inflation on your business and market conditions?
Madine: We did an employment engagement survey, and one of the hot topics was the impact of inflation on everyone’s paycheck. In terms of costs, everything costs more, whether it is fuel, labor, or equipment, everything is up across the board for everyone that is in this industry. I think that people need to get somewhat comfortable with the notion that things are going to cost more for a while. There is a lot of opportunity in that for those in this business, especially for some of the challenges we have had in the supply chain. People seem to take it for granted that things will show up. Companies that provide outstanding service and are trustworthy and reliable have an opportunity to take market share. We are all in business to make a profit, but if you can go to a customer dealing with prices going up and help run its supply chain more efficiently and save the customer money, you will be in a position to win business. We cannot control inflation and the cost of things, but you can sort of control the way you respond to the market. And right now, pricing is really high for everything. Businesses are really worried about where their dollars are going. We see that as an opportunity to go win share.
LM: Do you think we are in a freight recession?
Madine: Things were so hot for 18 months, and we were seeing volume records set frequently. Then we hit a period earlier this year, where maybe things softened up a bit. We are coming off of these irrational highs…and things slowed down a bit. But it is weird, in that I think we are talking ourselves into a problem as well. The truckload side of our business may have taken a little dip, but I think that is more because our truckload business is doing so well and customers just reset their contracts earlier in the year. Is it slower? It feels a little slower, but it feels slower compared to a record year by any measure. There has never been a year in our industry like 2021. I am not able to predict whether or not we will enter a recession, but we are preparing for things to be a little slower and for headwinds to increase on our existing customer base. We are also treating it as an opportunity, because in those environments customers are still going to ship things and manage their supply chain effectively and will be more tuned in to do things more efficiently and for a better cost. That is a huge opportunity for a company like ours.
LM: How do you view the current state of spot and contract pricing?
Madine: In 2021, you had a lot of people come in and chase the almighty dollar and putting new trucks into the market to chase the spot business because of where rates where. In the beginning of this year, a lot of shippers decided to reset their contract pricing so they could have predictability over what they would pay. Rejections then went way down and that leads to more core business moving to the contract side and less to spot. That was sort of a natural byproduct, not of demand softening but more of larger shippers saying they need more predictability and reset their contract prices across the board. Today, I think you are going to see a much higher floor to pricing than you did in 2019 and prior freight recessions because everything costs more. Equipment costs are up, and fuel costs are up, and labor costs are up. In 2019, the bottom fell out of everything. I believe that supply will leave the market more rapidly as prices are under pressure, because people won’t be able to haul freight for the price they did in 2019.
LM: Does this present a situation in which some shippers may look more closely into private fleet or dedicated operations?
Madine: What we are seeing from our base is customers wanting to have secure capacity and are sort of shell-shocked from 2021. Our experience is no different from others, in that contracts are performing very well. I think there will be a reflection of that in contracts for the back half of the year where pricing comes down, but I don’t think it collapses in that market.
LM: What are some of the keu lessons learned from the pandemic from a service perspective and also what it means for your customers?
Madine: We rethought everything going into the pandemic. The blind spots that exposed the way we did business and sort of forced us to confront how we go to market. We used to go to market in a very manual way…with sales people walking around business parks knocking on doors, which is great but a highly inefficient way to do business. We have [changed] the way we source leads and appointments. It is a huge advantage for us. We have rethought the way we go to market and the way we support customers and how we support our workforce from a training standpoint. We used to have two-day or five-day training seminars, and we could not do that [during the pandemic] so we upped our game with virtual training. It is not one week of training. It is now over six weeks for two hours a day, not cramming 10 hours of information in a day down someone’s throat. The pandemic forced us to change the way we did everything, and, in a lot of cases, made us a much better company. Our employees are happier and are staying longer and performing better. It is a byproduct of us eliminating the blind spots.
LM: How do you view the increasing profile of supply chain and logistics?
Madine: For years, people took things for granted. It is almost like the power company; you don’t think about the power company until the power is not working. It is just in the background. We, as consumers in society, sort of took things for granted, with things operating the way they should. Everything was stable. Whether it was parcel or LTL or ocean or whatever mode it was, there was enough stability and capacity in the way things flowed, and everything worked. But then we went through this period where consumer behavior changed dramatically. All of a sudden there were chokepoints in networks and Covid outbreaks and stuff just stopped working. I think consumers, for the first time, finally realized that things just don’t magically show up. I think the good thing about that is, yes, there is more attention on the space, and it has become a cooler place to work. But I think it also gives quality providers—asset-based or non-asset-based—the ability to differentiate themselves from the less credible providers. If you are a highly credible provider, people will use you. For years, people took it for granted that everything would work, but now I think they appreciate the complexity of running these massive networks. If you do your job well and give your customers a good experience, it allows you to differentiate yourselves from the pack.